So my friend and I discovered thst there is an action window between declaring attackers and assigning stealth. Does that mean that if Im the defender and I have a charater with an appropriate naval icon, that I can use the naval action to assign my character to the challenge before my opponent has the chance to stealth that character?

Yes. And if your opponent makes the (common) mistake of attempting to stealth on attack (I attack with these characters and stealth your naval dude), you just politely remind them that you have an action opportunity before they declare stealth and then naval in your defender.